Unsolicited Advice for Ohio’s Economic
Architects Mark Partridge
December 16, 2010Swank Chair in Rural-Urban Policy
([email protected])Department of Agricultural, Environmental & Development
EconomicsOhio State University Extension
Introduction 2009 Title: “The Great Crisis: Will
Economic Recovery Look More Like the Crisis?” Unfortunately I was correct in my dim assessment even though the recession ‘officially’ ended in June 2009. From last year: “Finally we appear to be
entering the trough or bottom. Economic recovery is at hand(?).”
Since 1990—recessions have become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”
12/16/2010 Policy & Outlook Program 2
Introduction—Continued How Ohio recovers has
implications for its families and communities.
It also has implications for how its governments provide services and whether they will have sufficient revenue for investment. Schools, infrastructure, and basic government services that are necessary for Ohio to attract/retain population.
12/16/2010 Policy & Outlook Program 3
Introduction—Continued This year, the state of the Ohio
economy is even more important: Biennium budget is due and it is perhaps $8 billion out of balance.
Set the stage to put the rural & agricultural economies into broader perspective.
Unsolicited advice related to policy.
12/16/2010 Policy & Outlook Program 4
Outline1. Current economic situation2. Mr. Kasich’s strengths3. Advice to Ohio’s architects.
12/16/2010 Policy & Outlook Program 5
Data—focus on job growth. Journalists love to report the
unemployment rate but it can be quite misleading or even useless. 5.5% OH unemployment rate in Aug 2006
9.7% OH unemployment rate in Oct 2010 2006 figure overstated the strength of
the economy because unemployed migrated to booming economies
2010—no migration so unemployment rate rises and can overstate the pain.12/16/2010 Policy & Outlook Program 6
Data—focus on job growth. North Dakota is held up today as
strong economy 3.8% unemployment rate (2.6% in 2001). Yet, ND’s long-term performance in terms of population is the worst in the country.
UR does not capture migration and differences in employment/population ratio.
Ultimately what drives OH’s or ND’s prosperity is job growth.
12/16/2010 Policy & Outlook Program 7
Economic Recovery: Then and Now Economic Recoveries in Ohio have
been very slow. The decreasing relative size of manufacturing means OH recessions are not as severe as in the past (relative to country).
But OH recoveries are now slower because manufacturing picks up fast in initial recovery.
12/16/2010 8Policy & Outlook Program
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960
90
95
100
105
110
1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-current
Ohio Non-farm Employment
12/16/2010 Policy & Outlook Program 9
60 months after the onset of recession, seasonally adjusted, Month 0=100
Economic Recovery: Then and Now Since 1990—recessions have
become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”
Bubbles since 1990 have taken years to work off after recession.
12/16/2010 Policy & Outlook Program 10
Ohio’s Problem are even more endemic and structural Long-term perspective under
Democrats and Republicans is not pretty. This is a major structural problem that long pre-dates Gov. Strickland. Ohio has long underperformed the U.S.
Ohio is no longer a manufacturing economy
12/16/2010 Policy & Outlook Program 11
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
8090
100110120130140150160170180190200
U.S.OhioMichiganIllinoisIndianaWis-consin
Source: Bureau of Labor Statistics.
1970-2009 Nonfarm Employment Growth, US and Great Lake States: Benchmarked to 1970=100
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
86
88
90
92
94
96
98
100
102
104Nonfarm Employment January 2006 – October
2010 (benchmarked to January 2006=100)
U.S.OhioMichiganIllinoisIndianaWisconsin
Source: Bureau of Labor Statistics.
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
6065707580859095
100105110115120
U.S.OhioMichiganIllinoisIndianaWis-consin
Source: Bureau of Labor Statistics.
1990-2009 Manufacturing Employment Growth: Selected States, 1990=100
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
60
65
70
75
80
85
90
95
100
105 Change in Manufacturing Employment (benchmarked to Jan. 2006=100)
U.S.OhioMichiganIllinoisIndianaWis-consin
Source: Bureau of Labor Statistics.
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
-20.0-18.0-16.0-14.0-12.0-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0 Annual Percent Change in Manufacturing
Employment, January 2006 - October 2010
non metro OHmetro OHOH - all counties
Source: U.S. Bureau of Labor Statistics,Non Metro is determined by taking the Ohio Total minus the Ohio Metropolitan Areas Employment.
Where are we as the economy recovers? Rural Ohio is faring better than
metropolitan Ohio. Among the 3 C’s, Cleveland is the
‘growth engine’ and Columbus has been the “engine that couldn’t”.
Smaller Ohio Metropolitan areas are showing some signs of life.
12/16/2010 17Policy & Outlook Program
Jan-06Mar-
06
May-06
Jul-06Se
p-06Nov-
06Jan
-07Mar-
07
May-07
Jul-07Se
p-07Nov-
07Jan
-08Mar-
08
May-08
Jul-08Se
p-08Nov-
08Jan
-09Mar-
09
May-09
Jul-09Se
p-09Nov-
09Jan
-10Mar-
10
May-10
Jul-10Se
p-10
-12.00
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00Annual Percent Change in Nonfarm Employment,
January 2006 - October 2010
OH - all countiesmetro OHnon metro OH
Source: U.S. Bureau of Labor Statistics,Non Metro is determined by taking the Ohio Total minus the Ohio Metropolitan Areas Employment.
-12.00
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00 Annual Percent Change in Nonfarm Employment, January 2006 - October 2010
OH - all countiesCincinnatiClevelandColumbus
Source: Bureau of Labor Statistics. Employment for metropolitan areas.
-12.00
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00 Annual Percent Change in Nonfarm Employment, January 2006 - October 2010
OH - all countiesSanduskyLimaMansfield
Source: Bureau of Labor Statistics. Employment for metropolitan areas.
Advice for Ohio’s Policymakers
Governor Strickland did not cause this problem. Under both Dems and Reps, Ohio has struggled for well over 40 years.
I showed you that Ohio likely entered recession around July 2006 before he was elected.
He cannot control the national economy and Ohio did not fare so poorly in recession compared to the past
2112/16/2010 Policy & Outlook Program
Advice for Ohio’s Policymakers John Kasich has been vague on
what he would do. John Kasich has a strong sense
that business does better in a less restrictive regulatory environment.
John Kasich appears willing to make a more responsive government with less administrative overhead.
12/16/2010 Policy & Outlook Program 22
Advice for Ohio’s Policymakers One strong feature is that John
Kasich says that small business is the underpinning of strong growth. Building our entrepreneurial capacity beats attracting outside firms with massive tax incentives.
Builds more diversified economy that outperforms ‘bribing’ outside firms with tax incentives.
12/16/2010 Policy & Outlook Program 23
Advice for Ohio’s Policymakers
Mr. Kasich says he will move state economic development efforts from ODD to a private nonprofit agency. He has a point about bureaucracy and the need for a responsive agency.
If it has a limited ability to offer wasteful tax incentives and less political control, this would be a positive step
But is it same old policies under a new name? Then, what’s the point? Also what about conflict of interest?
12/16/2010 Policy & Outlook Program 24
Advice for Ohio’s Policymakers Low taxes are a factor, but only
one factor. Productive economies need infrastructure and strong education. A challenge for Mr. Kasich is to appraise the tradeoffs between taxes and productive services.
12/16/2010 Policy & Outlook Program 25
Advice for Ohio’s Policymakers
Listen to economists! They say what you need to hear. Too often, economic development is focus group driven or simplistic notions such as getting ‘smart’ people in the room.
Regionalism and effective governance—roughly 200 local gov’ts in Columbus. Dayton/Montgomery County is a leader.
OH has thousands of local gov’ts with high taxes. Newspapers report that 85% of expenditures is local gov’ts.
12/16/2010 Policy & Outlook Program 26
Advice for Ohio’s Policymakers Bribing companies to come/stay
in Ohio has not worked. Building our entrepreneurial talent and retention. Economists view: Governments can’t pick winners
Losers know how to pick governments
I believe ‘communities’ should build an environment where:
The eventual ‘Winners’ pick your community.
12/16/2010 Policy & Outlook Program 27
Advice for Ohio’s Policymakers Whether building the latest fads
such as “clusters,” bio-tech, creative class, clean energy, value-added, etc. etc. etc., politicians are quick to respond w/o any research basis by offering tax incentives.
Shifting money from taxpayers to a politician’s favored activity has opportunity costs.
12/16/2010 Policy & Outlook Program 28
Advice for Ohio’s Policymakers Economists are very skeptical
that politicians, development ‘experts’, or bureaucrats (or regional economists or financial market titans) are good at picking sectors. E.g., weren’t financial derivatives based on housing mortgages the smart pick?
Random Walk down Wall Street.12/16/2010 Policy & Outlook Program 29
12/16/2010 31Policy & Outlook Program
Advice for Ohio’s Policymakers
Avoid faddy policies. It seems like all 50 states, 3,000+ counties, and about every advanced economy wants to be the leader of green/clean energy.
Very Very few will win. It is not strategic/creative to copy everyone else just because it is the latest fad.
Reminds me of how every place wanted to be the next Silicon Valley in the ‘80s and ‘90s.
12/16/2010 Policy & Outlook Program 32
Advice for Ohio’s Policymakers Summary A slow recovery is taking hold.
Led in rural Ohio and its smaller cities.
Ohio has long faced economic challenges. Systemic change is needed but is Ohio’s economic architects willing to take risks or act smart?
Unfair to tag Gov. Strickland with Ohio’s woes, but what about the long-term?
12/16/2010 Policy & Outlook Program 33
Advice for Ohio’s Policymakers
Mr. Kasich has a strong sense that efficient government goes a long way to economic success? Has he learned from past conservative leaders who did not succeed? Recall, both Dems and Reps have not fared well in the last 40+ years—not just a conservative issue.
Our architects need to be smart and not just copy everyone else or follow the latest fads.
12/16/2010 Policy & Outlook Program 34
Mark PartridgeSwank Chair in Rural-Urban PolicyDept. Agricultural, Environmental &
Development EconomicsThe Ohio State UniversityGoogle “Partridge Swank” and you will get my website(614) 688-4907([email protected])
12/16/2010 Policy & Outlook Program 35